Issues concerning levels of inequality, changes in inequality, and their determinants remain at the heart of the development agenda both in the theoretical debate and policy discussions.
Joseph E Stiglitz, recipient of the Nobel Memorial Prize in Economic Sciences in 2001 wrote a book in 2012 entitled The Price of Inequality.
In that book, he was reminding us that neoclassical economics and the Chicago school was trying in the mid fifties to make a paradigm shifting in economic thinking by emphasising that ‘a rising tide lifts all boats’: economic growth would bring increasing wealth and higher living standards to all sections of society.
In the ensuing economic and political debate in the Eighties, the neoliberal economic restructuring policies that followed the same path and was introduced to third world countries by the Washington Consensus (IMF, Word Bank, US Treasury Department ), this ‘rising-tide hypothesis’ evolved into a much more specific idea, according to which regressive economic policies— policies that favour the business/richer classes— would end up benefiting everyone.
Resources given to the rich would inevitably ‘trickle down’ to the rest.
What was in need, in their opinion, is to establish a remedial temporary social safety nets to minimise the social cost of the restructuring process that could be shouldered by the poor.
International Financial Institutes were telling policy makers that there is a trade-off: A country could achieve more equality, but only at the expense of overall economic performance.
Today it proved that the promised rising tide has only lifted the large yachts, and many of the smaller boats have been left dashed on the rocks.
This is partly because the extraordinary growth in top incomes has coincided with an economic slowdown.
This is especially true if we focus on appropriate measures of growth.
If we use the wrong metrics, we will strive for the wrong things.
As the international Commission on the Measurement of Economic Performance and Social Progress argued, there is a growing global consensus that GDP does not provide a good measure of overall economic performance.
What matters is whether growth is sustainable, and whether most citizens see their living standards rising year after year.
Today, these issues are as relevant in the Arab region as they are elsewhere.
Inequality, in various forms, is a major source of social injustice, a cause of poverty, and of conflict.
In a broader perspective, there are different approaches to tackle inequality, in particular differentiating individual, or vertical, and group, or horizontal, inequality, and adopting a plural approach to inequality, which involves moving beyond income to include some basic capabilities such as health, education and nutrition, and also inequalities in political power and cultural status.
The “World Inequality Report 2018 has ranked the Arab region as leading the world in economic inequality. According to their benchmark estimates, the share of total income accruing to the top 10% of income earners is about 64% in the region, which compares with 37% in Western Europe, 47% in the US, 55% in Brazil, and 62% in South Africa – the two latter countries being often characterised as the most unequal in the world.
Historically that was the case.
During the period 1990-2016, the top 10% of the population in the region enjoyed, on average, 60-66% of the region’s income, while the bottom 50% accrued on average less than 10% of regional income.
Furthermore, the Arab region is characterised by a dual social structure.
Income inequality exists both between countries as well as within individual nations.
Inequality between countries, according to the same Report, is largely due to the geography of oil ownership, resulting in the Gulf countries accounting for 42% of the region’s income in 2016 despite having only 15% of the region’s population.
There is an extremely rich group at the top, whose income levels are broadly comparable to their counterparts in high-income countries, and a much poorer mass of the population left with little income.
This structure reflects the absence of a broad ‘middle class’, usually the catalyst for social and economic change, as the middle 40% of the income distribution is left with far less income than the top 10%.
As for the causes of inequality in the region, it is a result of multiple factors.
On one hand, the disparate urban-rural income gap plays a large role in skewed income distribution.
Limited access to basic needs increases malnutrition and poverty rates in the rural and remote areas in non-oil countries, thereby furthering the economic divide.
The impact of Inequality can cause a profoundly damaging effect on the social cohesion of any society, given its potential to undermine the confidence of the poor and to fuel political discontent.
We all know how inequality has played a role in the Arab Spring uprisings and demonstrations, polarising these countries not just economically, but also politically.
Moreover, inequality is usually associated with a low elasticity of growth to poverty reduction.
This arises when inequality of opportunity is embedded in society, so that the poor are denied the assets by which they might build their livelihoods, and are disadvantaged – indeed, in some cases face outright discrimination – in markets.
Not only do the poor suffer, but so too does the economy as a whole, since the working poor are unable to contribute substantially.
In terms of possible Arab policy alternatives and solutions, what is needed to combat inequality in the non-oil countries of the region is to adopt pro-poor development strategies.
The first thing to ask in the formulation of this kind of strategies is: why does growth in the given country not always transmit its benefits to the poor? The answers lie in the degree of access that the poor have to markets and the terms on which they participate in such markets.
This can be broken down into the following elements: (a) Lack of physical access – some people are effectively unable to take advantage of opportunities owing to the costs of reaching the market; (b) Market failures – particularly in the cases of finance, land, and labour, such failures mean that the poor cannot obtain the resources needed to invest and innovate; (c) Lack of human capital of the poor – low levels of basic education and vocational skills, and higher levels of ill-health, often leave the poor in no position to get better-paid jobs; and (d) Exclusion – discrimination on grounds of remote region, race and ethnicity, and gender can mean people are excluded from jobs and public services.
In addition, the vulnerability of the poor to a range of hazards makes it too risky for them to invest, innovate, specialise and otherwise take up economic opportunities.
Indeed, shocks to the vulnerable poor are a major reason for poverty, depriving them of assets and preventing them from working.
Credit market imperfections also excludes the poor, or from a political economy in which policy distortions arise from the lobbying of the existing economic powers.
Judged by my experience, I can conclude that promoting pro-poor development policy to combat inequality is not a matter of reading off policies from a blueprint.
Policy-makers need to find the right combination and sequencing of these economic and social policies to facilitate pro-poor growth.
In the short term, with limited resources, trade-offs and prioritisation may be apparent.
But many of the measures are complementary and a broad approach could be more effective than a narrow one.
How closely should strategies target poor people or focus on general conditions? There is no clear answer to this – the nature of the policy will largely determine how a targeted approach should be adopted.
As the principles outlined indicate, most of the measures for economic growth apply generally, while social protection and countering discrimination will usually be targeted to particular cases and issues.
Application of these principles demands that strategies are tailored to local circumstances to ensure that they are context specific.
A far reached stakeholder’s participatory approach is a must.
Giving the majority, and particularly the poor, a stronger voice in policy-making promises to lead both to better policy-making as well to demands on the state for accountability, with consequent pressure for more effective and efficient public services.
That said, how the poor can gain more representation and power is a difficult question: formal democracy and decentralisation can help, but may not be sufficient.
Recent development success stories are notable for gains to the poor resulting from the initiatives of enlightened and socially responsible elites.
Indeed, the road to better governance is long, difficult and so deeply embedded in local contexts and sequences that it is difficult to stipulate what steps should be taken on the basis of general principles.
As with the case of pro-poor economic growth and poverty reduction, it seems that in trying to improve governance there is no substitute for detailed case based and context bound political economy analysis.
That will help us to know what works and what doesn’t.
The u201cWorld Inequality Report 2018u201d has ranked the Arab region as leading the world in economic inequality.
